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Case study: spend and gift money to keep the value of your estate under the inheritance tax threshold

Mr and Mrs G wanted to leave enough money to be just under the inheritance tax threshold of £650,000, assuming they live to age 100. We calculated that, over the next 14 years (bringing them to age 85), they would need to spend or gift approximately £30,000 extra each year. They had to be very careful what they spent their money on so as not to increase the value of their estate. The obvious choice was holidays. Unfortunately, Mrs G was scared of flying so they were quite limited in the places they could visit. We suggested that she went on a flying phobia course which she did. This worked so well that within six weeks they were on a flight to Borneo to fulfil one of Mr G’s lifelong ambitions to see the orangutans. The following month they were in Barcelona with friends. Not your typical estate planning dull, boring or depressing image! In addition to catching up on holidays, they also decided to gift £10,000 each year to their daughter, on the condition it was used to repay their mortgage. Their son in law had been in and out of work and their mortgage was a struggle to pay. Now, the mortgage is projected to be repaid in five years, instead of 16!

“David has helped change our mind about our finances. It was very difficult to change a lifetime’s mind-set of accumulating money and David has spent a lot of time with us to change our habits by giving us the confidence to spend and gift money. He continually thinks outside the box and encourages us to go on as many holidays whilst we still can. It’s also nice to think that the government is effectively contributing 40 per cent towards the cost! David is always available to speak to if we have any concerns.”

Very impressed with attitude and values

“We wanted a complete assessment of our financial situation from an independent person. My mother has used David Lamb for many years and when I saw him regarding her estate, I was very impressed with his attitude and values. David did a complete assessment of our finances covering mortgages, pensions, savings, insurances and projections depending on what lifestyle we are looking for when we retire. He got us to think about current lifestyle versus retirement lifestyle and what is important to us as well as risk spreading investments. He has a great way of explaining things in a clear manner and has an outlook that makes total sense. David did a very thorough job and covered everything we asked of him. I particularly like his realistic approach to life planning and he takes time to find out what is important to you and how you like to live as well as a thorough financial assessment before tailoring his recommendations. We will be using him for many years to come.”

— Mr and Mrs A, Northamptonshire

I would recommend Lamb Financial to anyone

“As we go towards eventual retirement we needed to know, be assured etc that we were making the right decisions about finance, what our retirement date may or could be and much more! We have been given a few tweaks along the way with various aspects and given much needed other products and investments that has really meant our retirement will be a lot sooner than we would have thought. David has the right balance for us and has been totally affordable. I recommend Lamb Financial to anyone.”

— Mr & Mrs T, Ponteland

Lamb Financial look at the long term interests of their clients

“Are all financial advisers the same? No. Do they all put the interests of their client first? No. We work with David and his team because they are different, looking at the long term interests of their clients. By investigating what you want in the future, they aim to make your savings give you the future that you want, not simply saving for saving’s sake. When your bucket is full enough they will tell you, potentially bringing forward retirement by years or letting you decide to take it easy earlier than you would otherwise have thought. They will also work with you to help manage your lifestyle, budget for big life events and show you how you can achieve a better long term future than you had ever thought possible.”

— Mr R, Corbridge

My favourite case

About 10 years ago, I was having an annual investment review with Cumbrian clients Andrew and Mary. They had spent over 30 years building their business and sold it, when they retired. Unfortunately, they were not spending their money, only living off the ‘interest’, because they were scared of running out.

I asked them, if they lived to age 100, how much did they want to leave? Their response was that they did not want to pay any inheritance tax (they had read this was a voluntary tax paid by those who dislike their children even more than they dislike the Inland Revenue) which, at the time, meant leaving no more that £650,000.

Using our cashflow modelling software, we calculated that between ages 68 and 80, they could spend an extra £30,000 on average each year. ‘A new car then!’ was Andrew’s response. And more holidays I suggested? He was all for this, but Mary was very quiet. She stated that they had had enough of cruises and driving around Europe. I said: ‘But there is a big world to be explored.’ However she was still very uncomfortable. It turned out that she feared flying.

Driving home that night, I remembered that a friend had been on a flying phobia course, at Newcastle Airport. I googled this and sent the link across to Andrew. To cut a long story short, she went on the course in the February and by May they were in Borneo, watching the orangutans, because that had always been on Andrew’s bucket list. The following month, they were in Barcelona for a long weekend with friends.

Since then, they have at least three holidays each year, and have been able to gift money to their daughters (because they know they are never going to drop below £650,000), who have now either paid off their mortgages, or will do in the near future. At every review meeting now, whilst we do review their investments, the main question is ‘How much can we spend next year?’ Talk about getting job satisfaction!

What should a good financial planner be doing for you?

A good financial planner needs to get to know you really well. It is essential that they get to know you first and get to know your money later. Going straight to the money is like a doctor putting his glove on before you tell him what is wrong.

Most decent financial advisers get to know the hard facts; your income and expenditure, assets and liabilities. But a good financial planner will want to know a lot more about you, your family, your history, what you want to achieve – and when. They should aim to understand your current and desired lifestyles – in a future article we’ll consider the main components of your lifestyle.

Understanding how your money will flow through your life is essential. This can be a very intimate and personal experience; hence they need to consider the chemistry between you – discussed in my last article which you can find at lambandassociates.co.uk/blog. Once they understand you, they can then consider how they can help you achieve your lifestyle with the resources you have available.

You should expect this to be done, effectively using a set of accounts, including a net worth statement, income and expenditure statement, tax calculations and cash flow projections. When these are prepared, you will be ready for a planning meeting. The planning meeting should discuss the assumptions made (eg life expectancy, inflation, rates of return) and it is essential that you have confidence in the assumptions. If not, you cannot have confidence in the outcomes. When you understand where you are and where you are heading without any planning, you will be ready to plan your future.

What your planner should not be doing is doing your planning for you; it is unlikely that you will buy into it and therefore not commit to it. Financial planning works well when you work with your planner. To get best results, you should do your own planning, with your planner merely facilitating the meeting and using their skill and experience to guide you. They should also be there to think outside the box when necessary. A good financial planner should be working with you to help change your life. That’s value for money!

How a client’s tears changed my life

I had been an independent financial adviser for 15 years and I was getting bored. Talking about pensions, life assurance, investments, funds, volatility and returns was not very exciting. And did it make any real difference to our clients’ lives? Probably not.

Then, one very wet Monday evening, an existing client came into our office to discuss investing some money. I went through the normal process of an investment risk analysis, considering timescales for when the money would be required and drafting out a proposed investment portfolio.

I then asked the client a question about work and she burst into tears. I sympathetically asked her what the problem was and it turned out she was being bullied but, because of her financial commitments, she felt she was stuck and had to put up with it.

I asked her what the money she was proposing to invest was actually for and she replied that it was for a rainy day. I told her it was pouring, and, for dramatic effect, I ripped up the piece of paper with the draft portfolio we had just constructed and threw it in the bin, along with £1,500 in commission.

We then did some basic cash flow projections to calculate how long she could survive without a job if she went into work the following day and resigned. We estimated about 18 months. She was confident she could find a new role in that time.

We then considered how much she would need to earn as a self-employed consultant to maintain her standard of living. Again, quite roughly, we estimated she should need to work about 2½ days a week. She left our office in a much better mood.

The following morning she phoned me and said she wanted to thank me for my advice. She said I had changed her life as I had taken all the stress away and she had decided against resigning. She would instead continue to work, but more relaxed in the knowledge that if things got too bad she could just leave.

Within a year she had a new job and life is now good. Looking back I don’t know if I really changed her life, but this experience certainly changed mine. For that is when I realised this was the type of work I really wanted to do – I just had to work out how to get paid for it!

A few months later I attended a course which introduced me to the software which enables us to provide life changing advice. More than a decade on, our whole business is based around lifestyle financial planning and we have been able to help lots of clients achieve their desired lifestyle, ticking off wonderfully exciting bucket lists. You couldn’t pay me enough to be an ordinary independent financial adviser now.